1. Decreased Creditor Protection for Inherited IRAs.
Currently, if you have money in a 401(k), a pension plan, or an IRA, and you were going to declare bankruptcy, up to $1.25 million would be protected from creditors.
Recently, the U.S. Supreme Court ruled that inherited IRAs are no longer considered retirement funds and therefore, lack the creditor protections afforded under federal law (less than $1.25 million). 2. Introduction of Qualified Longevity Annuities to 401(k)s.
A person can now hold a qualified longevity annuity contract (QLAC) inside of an IRA or 401(k) worth up to the lesser of 25% of their account balance or $125K.
New rules from the Treasury Department state that QLACS are now excluded from the retirement account balance when calculating required minimum distributions when a person reaches the age of 70.5. 3. Reduction in the number of IRA to IRA rollovers.
An individual can withdraw funds from an IRA and roll the funds over to another IRA or the same IRA within 60 days to avoid being taxed.
Now, after a tax court decision, only one 60 day rollover is allowed during a 12 month period no matter how many IRAs a person has. 4. Increased access to annuities in target date funds.
This change gives people another way to generate guaranteed retirement income.
5. Creation of the myIRA (My Retirement Account).
This new Roth IRA will give people that have no access to an employer sponsored retirement plan the chance to save for retirement. The money comes right out of an individual’s paycheck and it gets invested in a guaranteed variable rate government security.
If your age 50 or less, you can have $5,500 taken out of your paycheck per year. If 50+, you can take out $6,500 per year out of your paycheck.
Careless IRA Planning Exposes Risks
If you have or plan on opening a traditional IRA in 2015, listen up. The next ten minutes or so could save you some money, and who doesn’t want more money to begin a new year?
Pre-retirees in their 50s and 60s that have traditional IRAs in their retirement plans may need to pay attention more closely to those accounts. According to a report, a third of savers in their 50s and a quarter between 60 and 64 invest their IRAs completely in stocks, and that might carry unnecessary risk. Another surprising finding is that more than half of pre-retirees with IRAs spent less than an hour planning their IRAs when they invested in them; spending even a little more effort on looking for lower fees and expenses can add value exponentially over time.
Rules and Regulations: Some investors are somewhat intimidated by the complexity of the rules that govern IRAs. There are so many factors to consider that influence limits and eligibility such as income, age and other investments, not to mention whether or not we’re talking about a Roth or traditional IRA. It’s easy to see how frustrating navigating these may be, but fortunately professional financial advice is just a phone call away. There are actually some great tax breaks that can be taken advantage of by investing in many retirement accounts and playing them against each other.
Diversification and Asset Allocations: Accounts with 100% stock allocations are going to take a hit on days when the Dow drops 2% and the NASDAQ falls 3%, and that’s nothing compared to a market correction. With the high volatility this years’ equity market fluctuated by, diversifications may be something worth looking into. Another thought to consider is that pre-retirees generally have other savings accounts like 401(k)s that they also contribute to. Those accounts might be allocated as 100% bonds, so regardless of how tilted that investor’s IRA is towards stock, his overall asset allocation will be much closer to the average saver’s 50-50 stock-bond split.
When Being Conservative Is Risky: One of the most problematic financial situations for retirees happens when savings growth is outpaced by inflation. This is a common reason why retirement plans fail. With CDs and bonds paying such low returns, it actually costs you purchasing power to avoid any risk at all here. When rates are low, stocks are the better investment to make because their returns are much more competitive. Over the long-term, no other asset has outperformed equities, despite their risk.
Long-Term Perspective: If you are committed to investing heavily in the stock market with one or several of your savings accounts, it’s essential to have the mentality to stick it out through the rough patches. This is a buy-and-hold strategy that will work against you if you realize too late that you have a high risk tolerance and pull out your money with your stocks are priced low. Consider the outcomes first.
If you live in the Seattle, Washington area and would like to know more about the right retirement solutions for you, contact a local retirement solutions service in Seattle, WA.